Defence suppliers' cycle of dependence

Despite making some killer aircraft in the First World War, Sopwith found the ground cut out from under it in the postwar period. Despite a series of grand plans to adapt to the peacetime market it eventually folded.

Thanks to its niche clientele, defence companies are intensely familiar with a feast/famine situation. When competing for local military business or for an ever more competitive and sometimes even shrinking international markets, clinching a contract can mean a massive gold-plated income stream, and failing to gain one can be disastrous - the losers of the US' next generation bomber project may be forced to scale down their defence-related workforce and thus temporarily bow out of the military aviation market! Firms that are not sufficiently diversified are certainly uniquely vulnerable: no sane company can afford to keep its workforce twiddling its thumbs while it waits for the next big contract - even spare parts and support won't be enough to keep the designers and researchers occupied, unless it is diversified enough to draw upon revenues from other sectors. (Maybe if labour is liquid enough, they can be hired temporarily under contract.)

Unpredictable demand may well worsen the situation: a military supplier and a state would be a fool to enter into a sale without well-written contracts to specify who gets stuck holding the bag in case of cuts or unforseen situations, a la the Russian Mistrals.

Therefore, today, one big argument that governments put forward for "buying local" is the need to keep the local defence industry alive. This is sometimes against the will of militaries and the treasury.

This naturally raises a whole host of concerns; I wasn't aware that the defence budget was to serve as an industrial subsidy, although some western governments doubtless think it is. Subsidies of course come with issues of inefficiency. Big items such as the Japanese F-2 project are glaring examples, but lack of competition threatens to turn certain big concerns into protected sinecures. I'm sure the real everyday toll of industrial protection comes from sluggish support, poor management and the like that affects the service standards and products of defence firms.

As much as I would like to say, "let the free market sort it out - why should defence companies be privileged over any other?" this is a policy beyond the capability (or desire!) of many governments. This is doubly so in the Southeast Asian region.

Ideally, this feast/famine cycle could be 'resolved' not just by clear telegraphing of demand (or forcing a stable 'schedule' of work down buyers' and sellers' throats), but perhaps accepting that most military requirements aren't so special after all, and going 'civilian' whereever one can. If this leads to the military being more open and dependent on the wider market and society, so much the better! No wars were fought purely by the green machine, it always rests upon labour at home.

If subsidies are genuinely a must, focusing on certain key capabilities may be more affordable - small arms and ammunition manufacture, for instance, is well within the reach of most nations.

The alternative - to treat defence companies like immature seedlings that constantly need protection - is unpalatable to everyone. Except those with vested interests in these same firms.